When I read that Royal Caribbean (RCL) was forced to cut one of its cruises short, it brought back memories, not very pleasant ones, of my last cruise when my family and I experienced a minor norovirus outbreak on a Carnival (CCL) ship before the largest cruiseship operator became notorious for it.
Though it wasn’t pleasant, it wasn’t the end of the world either. And it won’t dissuade me from going on a cruise or buying the shares of the industry’s players because RCL, CCL and Norwegian Cruise Line Holdings (NCLH) all have room to run.
RCL Stock Showing Strength
Indeed, RCL, whose shares have jumped nearly 30% over the past year, reported an outstanding quarter thanks to strong demand for sailing in Asia and Europe and gains in onboard revenue from attractions such as casinos.
In the quarter ended Dec. 31, Royal Caribbean reported net income of $7.02 billion, or 3 cents per share, reversing a year-earlier loss of $392.8 million, or $1.80 per share. Excluding one-time items, profit was 23 cents, above the 19 cents analysts expected. Revenue was little changed at $1.85 billion.
Clearly, RCL is being hurt by tsunami of negative news that has engulfed CCL for the past few years, but RCL stock is weathering that storm quite well. Indeed, RCL ratcheted up its annual guidance to $3.20-$3.40 per share, better than analysts’ expectations of $3.19 and an increase from an earlier forecast of $3.06.
The publicity surrounding Royal Caribbean has been especially rough. Who can forget the “poop cruise” headlines? A few months later, CNN uncovered even more damaging information about the Carnival Triumph, noting that there were serious concerns about the vessel months before a fire knocked out its power and it sailed into infamy.
No wonder Carnival is planning to spend $700 million upgrading its fleet.
Nonetheless, there is plenty of reason to be optimistic about the cruise industry. For one thing, cruising is a cost-effective way to see many destinations in one area such as the Caribbean. It gives vacationers the most bang for their buck.
According to Cruise Market Watch, passenger volumes will grow at a compound annual growth rate at 7% through 2018. A whopping 167 new ships have been added since 2000.
The market is underserved — only about 24% of the U.S. population have taken a cruise — and Royal Caribbean is poised for growth. Cruise Market Watch estimates its market share at 22.7%, second only to Carnival. The company is scheduled to add new ships from 2014 to 2016 and is in the midst of upgrading its entire fleet including staterooms and restaurants.
But the rising tide that’s lifting Royal Caribbean is also helping Carnival…